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CASE NO.: Appeal (civil)  6301 of 2001

PETITIONER: Krishi Utpadan Mandi Samiti & Ors.                                    

RESPONDENT: Pilibhit Pantnagar Beej Ltd. & Anr. (s)

DATE OF JUDGMENT: 28/11/2003

BENCH: CJI. & Dr. AR. Lakshmanan.

JUDGMENT: J U D G M E N T

Dr. AR. Lakshmanan, J.

       The unsuccessful respondents 2,3 and 4 before the High Court of Allahabad are  the appellants in this appeal.  The writ petition was filed by the first respondent herein t o  quash the order dated 12.03.1999 (Annexure 17 to the writ petition) and for mandamus  restraining the appellants herein from interfering in the business in certified seeds either   before or after processing and further in restraining the appellants from demanding and  realising market fee on the transaction of unprocessed or processed certified seeds.

A Division Bench of the Allahabad High Court allowed the writ petition following  the decision of this Court in State of Rajasthan vs. Rajasthan Agriculture Input  Dealers Association reported in AIR 1996 SC 2179 which has also been followed by  the Division Bench of the said Court in Writ Petition No. 7262 of 1993 dated  18.12.1996.  The High Court quashed the impugned order dated 12.03.1999 and also  held that the respondents in the writ petition/appellants herein cannot charge mandi fee  on the seeds in which the first respondent herein deals.  Aggrieved by the judgment of  the High Court in Civil (M) No. 17877 of 1999 dated 25.08.1999,  a Special Leave  Petition was filed under Article 136 of the Constitution of India.  When the Special  Leave Petition came up for hearing on 06.09.2001, leave was granted by this Court and  considering the importance of the questions involved, the matter was placed before  Hon’ble the Chief Justice for referring to a larger Bench.  

The facts giving rise to this appeal are stated below:-

The U.P. Krishi Utpadan Mandi Adhiniyam, 1964 (hereinafter referred to as "the  Adhiniyam") was enacted to regulate sale and purchase of agricultural produce and for  establishment, superintendence and control of market in U.P.  Section 6 provides for  declaration of market area and Sections 9 and 10 prohibit business of specified  agricultural produce in such market areas without licence.   

Specified  Agricultural produce is defined under Section 2 (a) of the Adhiniyam,  as follows: "2(a) ‘agricultural produce’ means such items of produce of agriculture,  horticulture, viticulture, apiculture, sericulture, pisciculture, animal husbandry  or forest as are specified in the Schedule, and includes admixture of two or  more of such items, and also includes any such item in processed form, and  further includes gur, rab, shakkar, khandsari and jaggery." The schedule appended to the Adhiniyam provides a list of agriculture produce.   Section 17(iii) of the Adhiniyam provides for imposition of market fee on the  transactions of such specified agricultural produce in the market area, on such rates  notified by the State.  Wheat is specified in the Schedule at Serial No.1 under the  heading of cereals.  It was submitted that wherever seeds have been intended to be  notified, it has been specifically mentioned as seeds.  In case of wheat, however, it has  not been notified for seed and thus the seeds of wheat are not covered in the Schedule

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and are thus not covered by the definition of Specified Agricultural Produce.  

The first respondent-company is a private limited company, engaged in  production of certified seeds since 1996-97 and holds valid registration certificate from  the District Agriculture Officer, Pilibhit under the Seeds Control Order 10983 valid upto  25.5.2000 and holds a certificate of registration from the U.P. Seeds Certification  Agency, Alam Bagh, Lucknow.          

According  to the first respondent, the business of the company is to purchase  ‘breeder seeds’ from Agricultural Research Institute  and to produce ‘certified seeds’.   The first step of production is to distribute this breeder seeds to the listed and  scheduled farmers.  The breeder seeds are sown and are germinated under strict  supervision of the statutory Seeds Certification Agency, set up under the Seeds Act,  1966 (hereinafter referred to as "the Act").  The harvest is selected carefully under  supervision of the Agency.  The lots which do not conform to specifications are rejected.    

It was further submitted that the standardized seeds so obtained are called  ‘Foundation Seeds’.  These foundation seeds are thereafter again supplied to the listed  farmers variety wise with intimation to the Agency.  The farmers sow these foundation  seeds which are again supervised by the Agency.  This crop is again germinated under  strict supervision of the agency and once again the lots rejected are not taken back by  farmers.  After harvesting the approved standardised certified seeds, these lots are  fumigated for preservation under the samples of each lot is tested in the laboratories of  Seeds Certification Agency at Alam Bagh(Lucknow), Kanpur, Rudrapur (Udham Singh  Nagar).  The rejected lots and losses at processing are returned to farmers only after  the foundation seeds are certified as conforming to specifications, the lots are subjected  to treatment with insecticides (Cell phose, Quick phose) and pesticides (thiram and  barastin) at the time of packing.  

It is the case of the first respondent that the bags are marked as poison and are  thereafter marketed.  The entire production, operation is supervised by the Seed  Certification Agency.  It was submitted that until the seeds are certified they continue to  be the property of the farmer, who agrees to such agreement on the foundation seed  distribution form.   In the year 1988, the Market Committee issued notices to the  companies engaged in certified seeds.  The notices were challenged and that after  contest, the High Court allowed the writ petition holding that certified seeds are not  specified agricultural produce and the notices issued by the Mandi Samiti were  quashed.  The aforesaid judgment was challenged by the Mandi Samiti in Civil Appeal  Nos. 106-110 of 1990.  This Court relying upon the judgment in State of Rajasthan vs.  Rajasthan Agriculrural Input Dealers Association, (supra) dismissed the civil  appeals.  Based on the aforesaid judgment, all the pending writ petitions were also  decided in favour of the dealers in certified seeds.  However, by notice dated  15.10.1997, the Mandi  Samiti directed the Ist respondent to deposit the market fee on  seeds.  The first respondent submitted a detailed reply annexing certificates issued by  the Seeds Certification Agency and the other relevant documents.  The first respondent  also submitted that they are not dealing in sale and purchase of food grains or wheat  but deals only in certified seeds and that the stock stored by them were not of wheat but  by the certified seeds of wheat under the supervision of the U.P. Seeds Certification  Agency.  The appellants rejected the representation of the first respondent and directed  them to pay market fee.  The first respondent challenged the aforesaid order by filing   Writ Petition No.1090 of 1997.  Again by Notification dated 11.8.1998, the first  respondent was required to submit information regarding sale and purchase of wheat  for the year 1997-1998.  A reply was submitted protesting the demands against law laid  down by this Court.  Aggrieved by the demands, the first respondent filed Writ Petition  No. 32740 of 1998 against the order dated 22.9.1998.  The writ petition was disposed of  with a direction to the first respondent herein to file a fresh representation.  In  pursuance of the aforesaid order, the first respondent filed a detailed representation  dated 15.2.1999.  The representation was rejected  by the appellants on 12.3.1999 and  a demand has been made for payment of market fee which was again challenged by  the first respondent herein by filing the present Writ Petition No. 17877 of 1999 which  was allowed by the High Court on 25.8.1999.

Against the said judgment of the High Court, the above appeal by way of special  leave petition has been filed. The instant appeal raises the following questions of law:

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(i) What is the true scope and ambit of Section 2(a) and 17 iii (b) of the Krishi  Utpadan Mandi Samiti Adhiniyam, 1964? (ii) Whether the market fee can be levied on the purchases of  wheat by the seed  processing unit to process and convert the same into certified seed by treating it  chemically? (iii) Whether there is any difference in wheat and wheat seed before it is  chemically treated and converted into certified seed and thus becomes unfit for human  consumption? (iv)  Whether it is necessary, to notify seed of cereals which can itself be used as  seed when the object of the legislature was to notify only those seeds which are  different from produce itself?

On the above pleadings, we heard Mr. Rakesh Dwivedi, learned senior counsel  appearing for the appellants and Mr. Dushyant A. Dave, learned senior counsel for the  contesting respondent.  

It was submitted by the appellants herein/respondents in the writ petition that  after the first respondent  purchased wheat, they convert it into seed by applying  pesticides and other chemicals and then the sale was effected as wheat seed and on  this transaction, Mandi Samiti is not demanding market  fee.   It was also submitted that  the decision of this Court in State of Rajasthan vs. Rajasthan Agricultural Input  Dealers Association (supra) are not applicable in the case of the first respondent and  that what is purchased by the first respondent herein is nothing but wheat and the entire  transaction of wheat is within the market area of Mandi Samiti, Pilibhit and hence  subject to payment of market fee.  It was also submitted that the first respondent -  Company is engaged in producing certified seeds but for that purpose it purchases  regularly wheat and other commodities for preparing seeds and on these transactions,  the first respondent is liable to pay market fee.  Before adverting to the respective  arguments, it is beneficial to reproduce sub-sections (a) & (b) of   Section 17(iii) of the  Adhiniyam, which reads as under:           "(iii) levy and collect: (a) such fees as may be prescribed for the issue or renewal of  licences; and

(b) market fee, which shall be payable on transactions of sale of  specified agricultural produce in the market area at such rates, being not less  than one percentum and not more than two and a half percentum of the price  of the agricultural produce so sold as the State Government may specify by  notification, and development cess which shall be payable on such  transactions of sale at the rate of half percentum of the price of the agricultural  produce so sold, and such fee or development cess shall be realised in the  following manner:- (1) if the produce is sold through a commission agent, the commission  agent may realise the market fee and the development cess from the  purchaser and shall be liable to pay the same to the Committee;

(2) if the produce is purchased directly by a trader from the producer,  the trader shall be liable to pay the market fee and development cess to the  Committee;

(3) if the produce is purchased by a trader from another trader, the  trader selling the produce may realise it from the purchaser and shall be liable  to pay the market  fee and development cess to the Committee:

Provided  that notwithstanding anything to the contrary contained in  any judgement, decree or order of any court, the trader selling the produce  shall be liable and be deemed always to have been liable with effect from  June 12, 1973 to pay the market fee to the Committee and shall not be  absolved from such liability on the ground that he has not realised it from the  purchaser:

Provided further that the trader selling the produce shall not be  absolved from the liability to pay the development cess on the ground  that he  has not realised it from the purchaser;

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(4) in any other case of sale of such produce, the purchaser shall be  liable to pay the market fee and development cess to the Committee:

Provided that no market fee or development cess shall be levied or  collected on the retail sale of any specified agricultural produce where such  sale is made to the consumer for his domestic consumption only:

Provided further that notwithstanding anything contained in this Act,  the Committee may at the option of, as the case may be, the commission  agent, trader or purchaser, who has obtained the licence, accept a lump sum  in lieu of the amount of market fee or development cess that may be payable  by him for an agricultural year in respect of such specified agricultural  produce, for such period, or such terms and in such manner as the State  Government may, by notified order specify:

Provided also that no market fee or development cess shall be levied  on transactions of sale of specified agricultural produce on which market fee  or development cess has been levied in any market area if the trader  furnishes in the form and manner prescribed, a declaration or certificate that  on such specified agricultural produce market fee or development cess has  already been levied in any other market area."

It was submitted by Mr. Rakesh Dwivedi, learned senior counsel appearing for  the appellants that the first respondent being the purchaser/trader is liable to pay  market fee under Section 17(iii) of the Act and that the contention of the respondent that  they sell wheat and the entire transaction is of wheat within the market area of Mandi  Samiti cannot be accepted.  

Mr. Rakesh Dwivedi, learned senior counsel for the appellants, submitted that at  the time of hearing in the case of State of Rajasthan vs. Mangi Lal  Pindwal, 1996(5)  SCC 60 by this Court, it could not be brought to the notice of this Court that the  intention of the legislature was to notify only those seeds which are different from its  produce and that the definition of agricultural produce being so wide that seeds of the  cereals are included in that entry and hence there was no necessity to notify the same  separately because there is no difference in Bazra or seed of  Bazra.  It was also  submitted that in the aforesaid judgment, this Court has held that seeds which are  manufactured after chemical treatment of Bazra by adding insecticides the market fee  cannot be levied on the sale and purchase of the same because the same cannot be  used for human consumption and ceases to be a cereal.  Therefore, it is clear that  before chemical treatment Bazra remains an agricultural produce and sale and  purchase of the same attracts imposition of market fee.  Arguing further, learned senior  counsel for the appellants contended that the High Court failed to appreciate that the  cereals are seeds itself and hence the same have not been notified separately because  there is no difference between wheat and seed of wheat and that Wheat includes its  seed.  Otherwise also the appellant is imposing market fee on wheat and not its  certified seed as manufactured by the first respondent. Concluding his arguments,  learned senior counsel, submitted that since the Wheat purchased by the first  respondent is neither chemically treated nor the same unfit for the human consumption  and hence market fee was rightly imposed.   

Per contra, Mr. Dushyant A. Dave, learned senior counsel appearing for the first  respondent, submitted that the respondent is not dealing in sale and purchase of food  grains or wheat but deals only in certified seeds and the stocks stored by them were not  of wheat but the certified seeds of wheat.  It was further submitted that the first  respondent purchases breeder seeds from Agricultural Universities and that seeds of  Wheat  is not included in the Schedule to the Adhiniyam.  It was further argued that the  first respondent intakes only the standardised and certified seeds from the farmers and  the undersize, oversize and seeds found unfit by Seed Certificate Agency are returned  to the farmers and the certified seeds  so purchased are thereafter chemically treated at  the processing plant and, therefore, these certified seeds either before processing with  chemical or thereafter  do not fall within the definition of term "wheat" and its purchasers   are not liable to market fee.

At the time of hearing, our attention was drawn to  a note on method and

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process of seed production submitted by the first respondent.  The principle and  method of production, as submitted in the note, is as under:- "1.  Reasons for Seed Production: All high yielding seeds are made by scientists by changing the  composition of genes in the seeds so that the seed gives high yields.   However, nature’s force has a tendency to change the seeds over a period of  time and, therefore, it is necessary to produce pure seed year after year.

2.  Laws governing seeds business:

2.1  The seed industry for production and sale is regulated under the Seeds  Act, 1966 and Rules and Seed Control Order, 1983.  Under  the seeds Act,  the Government has made State Seed Certification Agencies who are  responsible to certify  seeds and monitor their production and sales.

2.2 "The Indian Minimum Seed Standards" lays down the minimum seed  standards required for each crop which can be certified.

3.  Method of Seed Production:

3.1 The company purchases breeder seed from the Agricultural Universities  and then produces the next stage i.e. foundation seeds.  These foundation  seeds are given to contract farmers for further production to certified seed.   This certified seed is sold to trade and subsequently to farmers.  Foundation  Seed is the progeny of Breeder Seed and certified seed the progeny of  Foundation Seed.

4.  Procedure of production:

4.1  Purchase of breeder seeds from universities.(Rule 14(a))

4.2 Classification of foundation seed from breeder seed.( Rule 14(a))

4.3 Giving foundation seed to contract farmers.  ( Rule 14(c))

4.4. Registration of the contract farmers with the State Seed Certification  Agency and payment of registration and inspection charges to the  agency.(Rule 6(d) & Form I) 4.5 Sowing the foundation seed by the contract farmer in his field.

4.6 Inspection of the farmer’s field by an inspector of all the State Seed  Certification Agency, at least two times during the growth of the crop.(Rule  6(k))

4.7 Submission of final field report by the State Seed Certification Agency,  inspector stating that the crop meets the standards or   rejecting the crop if it  does not meet the standards.  The final filed report also states the estimated  quantity of produce of every field and farmer which the Company can  purchase(Rule 6(k) and 23(e))

4.8 If the farmers seed crop has been found satisfactory and indicated as  such in the  final field report prepared by the State Seed Certificate Agency  inspector it is purchased by the company and the seed stored in company  godowns.

4.9  The seed is then processed under the supervision of an inspector of the  State Seed Certification Agency who takes samples and sends them to the  Government Seed Testing Laboratory. (Rule 6(g) & 6(e))

4.10  After testing the Government Seed Testing Laboratory gives a report  which shows that either the seed meets the "Minimum Seed Standards" or it  does not.(Rule 21(3))

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4.11 If the seed meets the "Minimum Seed Standards", the chemical  treatment and baging of the seeds is made under the supervision of an  inspector of the State Seed Certification Agency.(Rule 17A)

4.12  After the seed is put in bag the inspector of the Seed Certification  Agency will seal and tag each bag and this seed and bag is called certified  seed which goes to the market.(Rule 17 II)

4.13  The seed inspector will also give a certificate to the company stating that  the seed has been found above the "Minimum Seed Standards" and has been  certified as such by the State Seed Certification Agency.(Rule17)"

A letter under Reference No. 3374/12-5-2001-600(88)/93 dated 7th January,  2002 sent by the Secretary, U.P. Government  to the Director, Mandi Parishad, U.P.  Lucknow, was placed before us for our perusal with an english translation and Hindi  version.  The english translation of the letter reads thus: "                                       No.3374/12-5-2001-600(88)/93 From :  Dr. Naseem Jedi,         Secretary,         U.P. Government

To      Director  Mandi Parishad         U.P. Lucknow. Krishi Anubhag - 5              Lucknow: Dated 07 January, 2002

Sub:- Exemption  of certified seeds by Trade Tax Department and accordingly  exemption of certified seeds by Mandi Parishad from Mandi Tax.

Sir, Regarding your letter dated 13.08.2001, in relation to the above subject  No.V.P/M.SH/760/T.C.II Khand/86-2001-1220, I have been ordered to inform  you that the production of certified seeds of various crops is taken through  farmers and then this seed is procured by the corporation in uncertified   form,  after which it goes through the certification procedures and chemical  treatment, and finally certified seed is produced.  Therefore, please note that  for production of certified seeds, on the purchase of raw uncertified seeds  there will be no Mandi Tax Liability.  Please ensure immediately and  appropriate action to enforce this decision. (Emphasis supplied)

                                                               Yours faithfully’                                                                       Sd/-                                                                  (Dr.Naseem Jedi)                                                                 Secretary"

       A reading of the said letter would also show that the production of certified  seeds, on the purchase of raw uncertified seeds there will be no Mandi Tax Liability.

       Learned senior counsel appearing for the parties also drew our attention to the  relevant provisions of the Seeds Act, 1966 (Act  No. 54 of 1966)  and the Seeds Rules,  1968 (hereinafter referred to as "the Rules").  We have also perused the Schedule  (Sections 2(a) and 4-A) to the Addhiniyam in which under the Heading A-Agriculture,  Wheat is included as Item No.1 in the sub-heading Cereals.  In the Statement of  Objects and Reasons, it is  stated that in the interest of increased agricultural  production in the country, it is considered necessary to regulate the quality of certain  seeds, such as seeds of food crops, cotton seeds, etc. to be sold for purposes of  agriculture including horticulture.   

       Section 2 of the Act  deals with definition of "Agricultural produce" , "Certificati on  Agency" and the "Seed" etc. Section 2(11) defines  Seed which means any of the  following classes of seeds used for sowing or planting -’ (i) seeds of food crops including edible oil seeds and seeds of fruits and     vegetables;

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(ii) cotton seeds; (iii) seeds of cattle fodder; (iv) jute seeds, and includes seedlings, and tubers, bulbs, rhizomes, roots, cuttings, all types of grafts  and other vegetatively propagated material, of  food crops or cattle fodder;

       Under Section 3 of the Act, the Central Government  has the authority to  constitute a Committee called the Central Seed Committee to advice the Central  Government and the State Governments on matters arising out of the administration of   this Act and to carry out the other functions assigned to it by or under this Act.   Section   4 deals with the authority of the Central Government  to establish a Central Seed  Laboratory or declare any seed laboratory as the Central Seed Laboratory to carry out  the functions entrusted to the Central Seed Laboratory by or under this Act.   Section 5  of the Act deals with power to notify kinds or varieties of seeds by the Central  Government.  Section 6 of the Act deals with the power of the Central Government to  specify minimum limits of germination and purity,  etc.   Section 8 of the Act deals with  Certification Agency which authorises the State Government or the Central Government  to establish a Certification Agency for the State to carry out the functions entrusted to  the Certification Agency by or under this Act.  Section 9 provides the procedure for  grant of certificate by Certification Agency.  Section 25 deals with power of the Central  Government to make Rules.

       Rule 2(e) of the Rules defines "certified seed".  Under Rule 2(f) of the Rules  "Certified seed producer"   has been defined. Rule 2(j) defines  "processing" and 2(m)  defines "treated".  The functions of the Central Seed Laboratory has been dealt with  under Rule 5 of the Rules.  The functions of the Certification Agency has been specified  under Rule 6 of the Rules. Rule 15 deals with the procedure for making application for  the grant of certificate under sub-section(1) of Rule 9.  Form I is prescribed for  application for Seed production under the Seeds Certification programme.  We are not  now concerned with the other Rules.

       We have already reproduced Section 2(a) and Section 17(iii) of the Adhiniyam.   Section 17(iii) of the Adhiniyam provides for imposition of market fee on the  transactions of sale of specified agricultural produce in the market area at such rates  notified by the State.  As already noticed,  Wheat is specified in the Schedule at S.No.1  under the Heading ’Cereals’.  A perusal of the Schedule would show that  wherever  seeds have been intended to be notified, it has been specifically mentioned as Seeds.   In case of Wheat, however, Schedule does not provide or notify seed of wheat and thus  the seeds of wheat are not specified in the Schedule and are thus not covered by the  definition of Agricultural produce.  We have also referred to the Objects and Reasons  for  enacting the Seeds Act, 1966 and the  Seeds Rules, 1968.  As already seen, Seeds  Rules, 1968 have made detailed provisions of production , processing and certification  of seeds under the Seed Certification Agency.  The Central Government in order to  exempt  the movement of seeds and in exercise of its powers  under the Essential  Commodities Act, has enacted Foodgrains Movement Restriction (Exemption of Seeds)  Orders, 1970 and the Seeds Control Order, 1983.  The seeds are also exempted from  Sales Tax under an exemption Notification dated 19.8.1970 issued under Section  4(1)(a) of the Act (Annexure CA 3).

       We have already referred to the essential conditions incorporated in the  Certificate of Registration.  One of the essential conditions incorporated in the  Certificate of Registration is that the  certificate holder shall not carry on any business  such as dealing in food grains, other than the business of sale of certified seeds.    Under the terms and conditions of such certificate, the first respondent is not carrying  any other business except the business of certified seeds and it is also not in dispute  that the respondent does not hold any other licence for dealing in food grains including  wheat.    It was also argued by Mr. Dushyant A. Dave that the Market Committee has  completely failed to appreciate the declaration of law in the case of  State of Rajasthan   vs.  Rajasthan Agriculture Input Dealer Dealers Association (supra) affirmed by this  Court on 21.8.1996.  In these orders, two reasonings were adopted to hold that the  transaction of seeds do not attract market fee namely (a) that the definition of  agricultural produce includes items specified in Schedule and that  wherever it was

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intended to separately cerealised seeds, they have been distinctly found mentioned in  the Schedule and that wherever the Schedule does not include seeds specifically in the  serialised item such seeds are not specified agricultural produce and (b) on the process  of coating and applying insecticides, other chemicals and poisonous substances the  basic character i.e. its consumption as food by human being or animals is irretrievably   lost and that such commodity is distinct from food grains.

The decision of the State Government does not take into account the first  reasoning and treats only that commodity as seeds which is treated with chemicals and  that the action, in our view, is apparently and palpably wrong.  It is to be noticed that th e  farmers are paid prices on the certified seed only after its certification and that the enti re  quantity of such seeds is chemically treated and is thus a distinct commodity as certified  seeds.  It was denied that the first respondent purchased  wheat from farmers and the  seeds purchased from the farmers are of very high quality specified standardised seeds  each of which price is very high as compare to wheat.  It is not sold in the market and  cannot be so sold as wheat and the entire quantity is taken for processing with  chemicals at processing plant.  The High Court has, in our view, correctly appreciated  and accepted  the contention of the respondent-Company and has rightly relied upon  the judgment of this Court in State of Rajasthan vs. Agricultural Input Dealers  Association (supra).

Learned senior counsel appearing  for the first respondent dew our attention to  Annexure CA  11 which is the representation in pursuance to the judgment of the High  Court in Writ Petition No. 3274 of 1998.  The relevant portion of the representation  reads as under: "Thus our business  procedure makes it clear that by the time we purchase  seeds from farmers it remain no longer simple unprocessed seed but it comes  into the category of certified seed after chemical treatment.  At the time of  purchase, this wheat is necessary to be determined is the nature of  commodity at the time of purchase.  As per the specific view taken by Hon’ble  Supreme Court in M/s State of Rajasthan Agriculture Input Dealer Association  ( AIR 1996 2179) seed undergone chemical and pesticide treatment is an  entirely different commodity and the same is not subject to market fee on  account of its non inclusion on the Schedule of Mandi Act. Under provisions of Section 17(iii)(b)(2) of the Mandi Act if agricultural  produce is purchased directly by a trader from a producer, the trader shall be  liable to pay the market fee but  in the present circumstances it is clear that  we have purchased only certified seeds from the farmers and certified seed  not being scheduled produced the same is not liable to fee at our level. In the same  reference, the decision taken in the meeting dated  16.5.1998 presided by Secretary Agriculture is also important. In the  abovesaid meeting, it has been  decided that if trader purchases unprocessed  seed before chemical treatment in that case the trader is liable to pay market  fee on such purchase of unprocessed seeds.  However, in the present case,  the trader has not purchased unprocessed seed before chemical treatment,  therefore, trader is not liable to pay fee on such purchases.  Thus direction  issued by Secretary Agriculture in meeting dated 16.5.1998 also support  trader’s stand."

I.A.No.3 of 2001 is filed by the first respondent  for  seeking permission  to place  on record a letter dated 19.1.2000 annexed as Annexure A which is very important for  the final adjudication of the case.  The said I.A. be taken on record.  By the said I.A., th e  first respondent sought to place on record a letter dated 19.1.2000 addressed by the  Principal Secretary, Government of Uttar Pradesh to the Commissioner, Trade Tax  Department, Government of Uttar Pradesh directing that instructions be issued to the  taxation officers that when the growers or the distributors, seed certification machinery  sell the seeds in sealed containers after producing themselves after certification along  with the tag  of the  Uttar Pradesh Certification Agency affixed as under the Central  Seed Act, 1966 then in such circumstances, no liability of purchase tax is attracted  under Section 3 AAAA(4).  We have perused the communication dated 19.01.2000  marked as Annexure A.  

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The judgment in the case of State of Rajasthan vs. Rajasthan Agriculture  Iinput Dealers Association (supra) was heavily relied on by the learned senior  appearing for the first respondent.  In the said case, the respondent therein claimed  themselves to be engaged in the business of purchasing and selling seeds and , in  particular, Bazra seeds.  According to them, seeds can not be termed to be agricultural  Produce for the purposes of the Rajasthan Agricultural Produce Market Act, 1961 and  its Schedule, as amended from time to time by the State Government in exercise of  powers under Section 40 enabling it to add, amend or cancel any of the items of  agricultural produce specified in the Schedule.  It is maintained that seeds are a  processed item and coated by insecticides, chemicals and other poisonous substances  whereby the grains employed lose their use and utility as foodgrains and become unfit  for human or animal consumption or for extraction therefrom for such consumption.   The  challenge posed by the respondents before the High Court was answered by the  appellants (State of Rajasthan) maintaining that foodgrains of all sorts, as mentioned in  the Schedule, were seeds, per se, the only exception carved out from the items  mentioned in the Schedule being those relating to blue tagged certified seeds and white  tagged certified foundation seeds; such exceptions have been notified by way of  amendment to the Schedule in exercise of the power of the State Government under  Section 40 of the Act.  The High Court took the view that when foodgrains of particular  varieties were treated and subjected to chemical process for preservation, those grains  become commercially known as "seeds".  It was ordered that no licence under the Act  was required for sale of such seeds.  On appeal, this Court held as under: "It is undoubtedly true that foodgrains per se could be used as seeds for being  sown and achieving germination, but in that form they retain the dual utility of  being foodgrains as well as seeds.  By process of coating and applying  insecticides, other chemicals and poisonous substances to the foodgrain  meant to be utilised as seeds, one of its basic character, i.e., its consumption  as food by human beings or animals or for extraction for the like purpose, gets  irretrievably lost and such processed seeds become a commodity distinct  from foodgrains as commonly understood.  That distinction was borne in mind  by the High Court in allowing the writ petition of the respondents, and in our  view rightly."  

The other decisions cited by the counsel for the appellants will not be of any  assistance in deciding the factual disputes involved in the instant case. In our view, the High Court has correctly applied the above judgment.  This  Court held that no market fee could be levied by the State of Rajasthan on seeds on the  ground that a seed was distinct from foodgrains inasmuch as they were not fit for  human consumption.  The ratio decidendi of the above decision is squarely applicable  to this case wherein the appellant seeks to give a wide connotation to the words in the  Schedule.  In our opinion, that giving a wide interpretation is not possible and as Wheat  Seed is not included in the Schedule, the Mandi Samiti is not allowed to levy a market  fee on purchase.  As the Mandi Samiti plays no role in the trade of the respondent’s  seeds, it may not be allowed to levy the market fee.  It is also not in dispute that the  Breeder Seeds are allocated by the Ministry of Agriculture or by the Universities to the  various seed producing agencies and companies who multiply the breeder seeds into  foundations seeds.    

It  is also very useful to refer hereunder the process by which the seed is  manufactured under   the Seeds Act and the Seeds Rules: "  (i)  Seeds developed in laboratories are classified as Breeder Seeds and  are sold through the Ministry of Agriculture or notified Agriculture Universities  to producing agencies, Companies and farmers.  Foundation Seeds (Stage I  and II) are developed as progenies of Breeder Seeds and are required to  obtain a Certificate from the Seed Certification Agency.

(ii)  The production of Foundation Seeds is supervised and approved by the  Certification Agency to maintain specific genetic identity and genetic purity  and are required to conform to certification standards specified for the  crop/variety being certified.

(iii) The Foundation Seed is then grown by the farmer in a land earmarked  specifically for the sowing of the Foundation Seed.  The offsprings of these  Seeds are terms as Certified Seeds, which too are required to meet the  minimum standards of genetic purity and genetic identity.

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(iv)  It is only if the Seeds meet the minimum standards are they subsequently  categorised as Certified Seeds and can be purchased by the respondent for  further processing.

(v)  The processing done by the respondent  is done under the aegis of an  Inspector of the State Seed Certification Agency and thereafter the samples  are taken for testing to notified Government Seed Testing laboratories.

(vi) It is only after meeting the minimum standards of genetic purity and  genetic identity that the Seed is put in a bag that is sealed and tagged by the  Inspector of the Seed Certification Agency.  It is this seed which is allowed to  be sold in the market and a certificate is issued by the Agency stating the  standards of the Seed and other particulars."        

It was submitted by the first respondent that all the above mentioned  stages of  Certification are as per the provisions of the Rules and that right from the inception to  the time when the Seed is sold in the market, it is done under regulation issued to  govern each and every stage of seed production and certificates are only issued after  the seed is found to achieve the minimum standards of genetic identity and genetic  purity.  It was also pointed out that no such certification standards  exist for food grains   sold by farmers to the Mandi Samiti.  Thus the production of seeds is an integrated  process and needs to be regulated at every stage, right from the inception, in order to  maintain genetic identity and genetic purity. There is no nexus whether the seed has been chemically treated or not and the  levy of market fees.   Since the seed  is a separate commodity from grain, the same is  not covered under Schedule I of the Adhiniyam and as such no market fee is leviable  over the sale and/or purchase of the same.

       We are, therefore, of the view that the seeds are not specified agricultural  produce under the provisions of the Act and, therefore, the business of purchase and  sale of seeds  under the supervision of Seed Certification Agency established under the  Act is not a business of sale and purchase of specified agricultural produce and as such  the first respondent  is not required to pay the market fee or to take out a licence.

       We are also of the view that the respondents have grossly erred in ignoring the  law settled by this Court in the case of State of Rajasthan vs. Rajasthan Agricultural  Input Dealers Association (supra) under Article 141 of the Constitution in demanding  market fee on seeds.  Since the processing of wheat resulting in loss of its basic  characteristics of being cereal, it cannot be subjected to levy as agricultural produce  since the purchase by the respondent is for the purpose of growing seeds, no levy is  permissible and, therefore, market fee cannot be imposed on seeds which are unfit for  human consumption. Question No.i         Thus, the true scope and ambit of Section 2 (a) and 17 (iii) (b) of the Act has  been explained in paras supra.

Question No. ii         The appellant has no authority to levy market fee on the purchase of wheat by  the seed processing unit.  This question is answered in the negative. Question No. iii         Wheat seed converted into certified seed is unfit for human consumption and,  therefore, market fee levy is impermissible. Question No. iv         The object of legislature was to notify only those seeds which are different from  the produce itself.   Thus all the questions are answered as above.         The argument of the counsel for the first respondent is well merited and founded  on sound legal principles and on practical and factual aspects of the matter.             For the foregoing reasons, we hold that the appeal has no merit and is liable to  be rejected.  Accordingly, we do so.  However, there will be no order as to costs.       

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